The jurisdiction clauses in domestic and international contracts governed by Brazilian law will be substantially impacted by a recent law update.
Federal Law 14.879, published on June 5, modified art. 63, §1, of the Brazilian Code of Civil Procedures (CPC) to provide that the clause of choice of jurisdiction must “keep relevance with the domicile or residence of one of the parties or where the obligation is to be performed, except for consumer agreements, when favorable to the consumer”.
The new legislation also added that the filing of lawsuit in a “random” court could be considered an abusive practice that would justify the decline of jurisdiction of the respective court.
See the impacts of the legal changes on clause of choice of jurisdiction in domestic and international contracts:
1. What Changes Were Made to Law That Impact the Choice of Jurisdiction in Domestic and International Contracts? Federal Law 14.879 modified art. 63, §1, of the Brazilian Code of Civil Procedures (CPC) to provide that the clause of choice of jurisdiction must “keep relevance with the domicile or residence of one of the parties or where the obligation is to be performed, except for consumer agreements, when favorable to the consumer”.
It also added §5 to art. 63 of the CPC to establish that the filing of lawsuit in a “random” court may be considered an abusive practice.
2. How Do Changes to Law Impact Domestic Contracts? Financial and banking contracts for domestic operations may be impacted when the lender/creditor wishes to define São Paulo (SP) as the chosen jurisdiction (given the vast track record in judging cases of these matters) and the location of the lender, borrower or obligation is not for São Paulo.
Until these new changes in law came into force, the general rule was that parties were free to choose the jurisdiction to resolve disputes, regardless of the location of the parties or their obligations. From June 5th (date of publication of new law changes), this will no longer be possible.
Domestic commercial contracts will have less impact since, in general, they already choose the jurisdiction of the headquarters of one of the parties to resolve conflicts.
3. How Do Changes in Law Impact International Contracts? International banking and financing contracts governed by Brazilian law will be directly impacted. This is because foreign lenders and investors, who do not have an address in Brazil, will not be free to define São Paulo (SP) as their chosen jurisdiction, except if the borrower is located in São Paulo (SP) or the obligation has to be performed in the city.
Banking, Financial, tech and commercial contracts, related to international transactions, which are governed by Brazilian law, will have to have their terms reassessed and adjusted, especially with regard to the place of fulfillment of obligations and choice of jurisdiction clause to ensure legal certainty in the execution of credit and collateral.
Changes in law regarding the choice of jurisdiction clause will impact domestic and international contracts worth billions of Brazilian reais. It will be essential that financial institutions, funds, investors and companies carry out risk assessment and implement the necessary adjustments as soon as possible.
